The Impact of Monetary Policy on the Exchange Rate: A Study Using Intraday Data
by Jonathan Kearns and Phil Manners
Reserve Bank of Australia
We investigate the impact of monetary policy on the exchange rate using an
event study with intraday data for four countries. Carefully selecting the
sample periods ensures that the policy change is exogenous to the exchange
rate. An unanticipated tightening of 25 basis points leads to a rapid
appreciation of around 0.35 percent. We also show that the impact depends on
how the surprise affects expectations of future monetary policy. If
expectations of future policy are revised by the full amount of the surprise,
then the impact on the exchange rate is larger (0.4 percent) than if the
surprise only brings forward an anticipated change in policy (0.2 percent).
JEL Codes: F31, G14.
(PDF, 27 pages 362 kb)